Brent ends at six-week low as fears over Syria fade

Brent crude oil prices settled at a six-week low on Tuesday as major world powers met to draft a resolution to destroy Syria's cache of chemical weapons, calming investor fears of an imminent U.S. military response. The resumption of some Libyan output also pressured prices.

Traders were selling oil contracts and deflating a geopolitical risk premium built into the price as fears of a U.S.-led invasion of Syria and any Middle East oil supply disruption abated, brokers said.

Diplomats from the United States, Russia, Britain, France and China launched negotiations on Tuesday on a Western-drafted resolution that would demand the destruction of Syria's chemical weapons.

"The Syria story was a "bulltrap"," said Sarah Emerson, managing director of Energy Security Analysis Inc in Wakefield, Massachusetts. "I guess the excitement had to run its course. The decision on chemical weapons triggered a sell off."

Brent crude for November delivery settled $1.88 per barrel lower at $108.19, after trading as low as $107.41, the lowest settlement price since Aug. 8. The contract dipped below the 200-day moving average at $108.53. The benchmark slid 2.4 percent on Monday, its steepest one-day decline since June 20.

U.S. crude for October delivery settled $1.17 per barrel lower at $105.42, below the 50-day moving average of $106.60, after trading as low as $105, its lowest since Sept. 3. The contract expires at the end of trading on Friday.

Brent's deflating risk premium caused the spread between the global benchmark and U.S. oil to narrow and settle at a one-month low at $3.37 per barrel.

Brent prices were also pressured by Libyan oil supplies. These are expected to rise to 400,000 to 450,000 barrels per day (bpd) as one of the biggest western oilfields, El Sharara, ramps up after workers resumed pumping on Monday. Oil production in Libya is still far below its pre-war level of 1.6 million bpd, which capped some losses in Brent, Emerson said.

The crude oil market was also taking cues from the sharp drop in the price of heating oil and gasoline. Heating oil futures settled with their largest one-day percentage loss in three months, some 2.3 percent lower at $2.99 a gallon. U.S. gasoline futures settled at a nine-month low at $2.66 a gallon as peak summer driving demand faded.

"Gasoline spreads to crude have come down a lot," Emerson said. "That's a strong signal from product market."

Crude oil prices are typically lower during this time of year as refinery maintenance lessens demand, analysts noted. Increased production from the North Sea, which is expected to rise in October, and a rise in Angola's oil exports in November will also help supply the market.

Investors were also selling oil as a two-day U.S. Federal Reserve meeting began on Tuesday in which the Fed is expected to cut its monthly bond purchases by at least $10 billion. The monetary easing policy has generally been supportive of commodities prices.

The U.S. dollar index, which measures the dollar's strength against a basket of currencies, was slightly lower on Tuesday but off the one-month low of $80.96 on Monday, and was last trading at $81.16.

Investors also awaited U.S. oil inventories data from the American Petroleum Institute (API) industry group at 4:30 p.m. EDT, and the U.S. Energy Information Administration due on Wednesday at 10:30 a.m. EDT.

A Reuters survey of analysts suggested U.S. commercial crude oil stockpiles fell last week by around 1.4 million barrels, while distillate inventories probably rose slightly. (Additional reporting by Christopher Johnson in London and Manolo Serapio in Singapore; Editing by William Hardy, Dale Hudson, Leslie Gevirtz, Andre Grenon and Diane Craft)